Interest in environmental, social and governance (ESG) investing has grown rapidly in recent years and shows no sign of slowing, with strong demand seen for the recent Green Gilt issuances. The UK Treasury also launched the world’s first standalone retail Green Savings Bond through National Savings & Investments (NS&I) in October 2021. Green Gilt and Green Savings Bonds are used to finance expenditures in clean transportation, energy efficiency, renewable energy, pollution prevention and control, living and natural resources, and climate change adaption.
There are many ways to pursue a sustainable investment approach or combine financial returns with ESG considerations. However, it can be hard to make an assessment as a private investor. Transparency is improving on ESG and reporting, but it can be difficult to appraise/screen investments, due to a number of challenges. Some of these are listed below:
- Standard valuation reports do not include ESG/sustainability information.
- As an increasing number of funds claim to have ESG credentials, it’s hard for investors to distinguish between companies with a viable ESG policy who walk the walk, and those that are only paying lip service.
- As interest in ESG has grown, third-party ratings agencies specialising in the provision of sustainability information have become increasingly influential. Ratings agencies offer a way to objectively assess the ESG performance of a company, evaluating each of the E, S and G components and providing scores/risk ratings. This allows investors to identify long-term risk exposure and future opportunities, but most private investors cannot access such analysis.
- Ratings agencies assess multiple criteria, with many employing differing metrics and weighting systems to measure a company’s ESG exposure and performance. This can lead to varied results that are often inconsistent, or even conflicting.
Wherever possible, investors should use more than one ratings agency for the most comprehensive and robust results. This ensures an objective and broad assessment of both ESG opportunities and risks.
At Lumin, we use an integrated, multi-rating ESG approach. Would you like to find out more? Request our free factsheet, or book a meeting with a Lumin expert on 03300 564 446, or via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
